Danny Dorlingis Professor of Geography at the University of Oxford. His most recent book is entitled All That Is Solid: The Great Housing Disaster (published by Allen Lane in spring 2014). In this interview with Joel Suss, managing editor of the British Politics and Policy blog, he traces the roots of the housing crisis in the UK, connects the housing issue with economic inequality, and argues for what’s to be done.

What is the housing crisis in the UK?

The housing crisis is a crisis of affordability. The biggest part of the cost of living crisis isn’t gas bills or food bills, it’s your rent or your mortgage. Rents have increased, and prices have increased in the South-East. Elsewhere prices have fallen and people are in negative equity. It’s issues with housing that are probably going to keep people awake at night in worry more than anything else. Beyond the cost, it is also the unpredictability, the fear and lack of any certainty about what’s going to happen to you depending on how you’re housed. Many people are not particularly well housed. Many don’t have much of an idea of how they’re going to be housed in three or four or five years time.

What are the roots of the problem?

Housing was the one of the big three issues – the others being education and health – that the UK didn’t sort out in terms of having a decent state support; a control on the quality of what happened and a control on people profiteering. For instance we don’t allow people to make massive profits, or largely we haven’t, out of education. Private schools are non-profit making. Housing, on the other hand, is a massive source of profit-making.

The rise in income and wealth inequality that began from the 1970s onwards has become a housing problem in the end. If you have one part of society becoming wealthier and wealthier, and everybody else sees their average income drop and their wealth levels fall to a lower proportion of national, it gets expressed in housing.

The immediate crisis is what’s happened since 2008. And that’s quite an incredible one. We’ve seen a tremendous shift to private landlords. Huge profits; £245 billion in the last five years net gains for private landlords in Britain. Rent going up, homelessness going up and people becoming more precarious – all very rapidly. One in 4 children in Britain are now living in a house with a private landlord.

Can you elaborate on the connection between housing and economic inequality?

It becomes harder and harder to house a population when you got incomes going up at the top and incomes staying stagnant in the middle and going down at the bottom. The bottom half of the population simply cannot afford to be housed. They have no spare money or power to do much about housing. People at the very top of society, the richest 1%, have so much money now that they have a problem of where to put it. Which is why people end up buying houses in Kensington and leaving them empty. It’s hard to find any society on earth that manages to house itself well when it does this to its income structure. It’s an expression of widening income inequality, which is partly why the issue is quite hard to solve and why we have a massive housing benefit bill.

How have the Help to Buy policy, Quantitative Easing and low interest rates contributed to the housing crisis?

Help to Buy is all about holding house prices up. It’s getting banks to lend to people they would not otherwise lend to. The buyer guarantees the first 5% and the taxpayer then collectively guarantees the next 20%. So we’ve taken out a £130 billion liability on the housing market. The bulk of spending in the last budget was all about holding the housing market up to 2015. So it’s quite clever of Osborne to pretend he’s going to carry this thing on [to 2020].

Low interest rates are interesting, in a way they’ve helped landlords because landlords can now borrow easier than they could before. Landlords of course can claim tax relief on borrowing unlike buyers, so they’ve made it easier for landlords to get hold of money. So now if you’ve found yourself at the bottom end of the first-time buyer’s market in London you’re actually competing not just with other first-time buyers, but with landlords trying to buy exactly the same flat because they want to make money renting it to you rather than you slowly buying it.

QE is the elephant in the room when it comes to wealth polarisation. The Bank of England itself has shown how the benefits of QE have gone largely to the top 10% of the population.

Is housing an issue only in London or is it a nation-wide crisis?

It exists everywhere in one form or another. One problem with London being so expensive is that it makes what are actually really expensive prices elsewhere not look expensive. But people still cannot afford something that’s 5 times their income just because in London it’s 12 times. London makes it worse everywhere by stopping people realising it’s bad. You’ve also got areas where prices have fallen a long way from what they were in 2007; for instance, the whole of Wales. So you have people trapped in their homes with little sympathy for them because elsewhere prices are rising.

Is increasing the housing supply the solution? Should we simply build more?

If you just build on its own the houses will be bought by people who can afford to buy the houses, so it won’t solve the problem. We are becoming more and more unequally distributed in the housing stock we’ve got. If we simply added more quickly, more of it would just be bought by people from abroad and by people who need a second or third home. That’s the problem with just building. We do not need to build more for the people who are currently here. For the people who are currently here we need to make better use of what we already have.

However, London does need to be build. It’s ridiculously shaped for a world city; it needs to build upwards. But the main debate about supply we should be having is about immigration. There is one good reason to build in Britain: we should expect high rates of immigration for many years to come. At the moment everybody’s in favour of building while nobody’s in favour in immigration. We’ve managed to have this incredible debate where we don’t talk about the prime reason why you’d increase your housing supply, which is more people. It’s really quite incredible that we can talk about housing without talking about immigration. The main reason why I’m in favour of some building is I hope not to be living in an economic dustbin in future. You know you’re not in an economic dustbin when people keep on coming to live alongside you where you live. So I expect, I hope, net immigration to continue and we need to build for that. But which politicians is ever going to say we are partly needing to build new homes for the immigrants we are going to come if our economy is successful in future?

You mentioned that our housing stock is becoming more unequally distributed. How do we use our housing more efficiently?

We’ve made London housing the safest investment for people – often dodgy people with lots of money to hide. We need a decent property tax like so many other places in the world, including many states in the US, so that people in the most expensive properties are paying at least the same tax as other people. Ireland now as a property tax of 0.18% which rises to 0.25% of the value of your property a year if it worth over one million euros. To get towards that I would take the lid off council tax. You take the top band, and then for the people in the top-half of the top band, create another band. For people in the top half of that band, create another band, and so on. I get up to band N for the Sultan of Brunei (who has a large home in Kensington). In this way you’d raise a lot of money. If you still want to own a really expensive house you can – it’s not a Stalinist policy that I am advocating – but your property tax would at least be proportionate to the value of the property.

Barriers to policy? Why isn’t anything being done?

A lot of people, say in the top 20 or 25% of the wealth distribution in Britain think that housing is worth far more than it is. They haven’t worked out that there isn’t going to be anybody to buy at the values that they believe it’s headed. They think it’s their pension, they think it’s their children’s future inheritance. So nothing happens because of optimism at the top.

How is this going to play out?

We’ll get a crisis is the most likely thing. At some point property in Mayfair won’t go up. If you run it forward 10 years, we run out of super-rich people coming in. If you run it for 20 years you have to have aliens arrive in spaceships to buy at the super inflated prices carrying bars of platinum with them from their home planets! Just take the house prices and multiply them forward 10 or 20 years, and then say: ‘so who’s going to have that money?’ I don’t believe super-rich aliens from other planets will arrive to buy London homes at future vastly elevated prices so the most likely thing is the beginnings of a crisis turning into a disaster, sadly, because of our lack of organisation and because of our politics.

Note: This article gives the views of theinterviewee, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.

About the Interviewee

Danny Dorlingis a British social geographer and is the Halford Mackinder Professor of Geography of the School of Geography and the Environment of the University of Oxford. He was previously a professor of Geography at the University of Sheffield. He has also worked in Newcastle, Bristol, Leeds and New Zealand, went to university in Newcastle upon Tyne, and to school in Oxford. Much of Danny’s work is available open access (see www.dannydorling.org).

1. A planning system that creates an artificial land shortage ratcheting up land values.
2. The total absence of Land Valuation Tax on all land, not buildings, whether occupied or not or abuilding on it or not.

Danny Dorling should keep his day job, professing Geography, rather than spouting on Economics! He’s got it wrong when it comes to the inter-relationship between the issues of affordable housing, the economic crisis, & increasing maldistribution of wealth – aka income inequality. For example, he sees a root cause of the housing crisis being that, “the UK didn’t sort [it] out in terms of having a decent state support”; & that, “the rise in income and wealth inequality that began from the 1970s onwards has become a housing problem in the end”. Perhaps, though, “the end” was the beginning?

If Dorling was an economist he would most likely realize that the lion’s share of productive economic activity gets siphoned off, first & foremost, into higher prices for land & other natural resources, leaving relatively marginal returns for both workers & investors in job creation – David Ricardo’s bedrock, time-tested economic theorem, the Law of Rent. Through this inexorable mechanism the rich get richer & the poor, poorer. The best thing that “the UK” could do to “sort it out” would be to move with all deliberate speed in the direction of taxing these unearned windfalls in higher land values for the public benefit.

The housing price situation is two-fold and cannot be blamed on the availability of cheap (low interest rate) money alone. Land ownership by individuals means that they can speculate in its rising price. Once this begins to happen (during the 18 year business cycle) the banks cooperate with the would-be land owners and lend them money for purchase of sites that are expected to become more costly with passing time. The banks and the new landlords like to speculate in this way but they do not develop their sites and the effect of this is to make land for use more expensive and less easy to find and buy. Thus a process of speculation in land values has the effect of rising prices of land and also of the whole property value after it has been built on, including those real-estate properties already built and often in use.

This effect of rising land prices is not simply due to the banks lending money and mortgaging properties but also because the land can be bought and sold like other durable kinds of goods. But unlike these goods, the land is not the result of somebody’s work and it is a natural resource for which we morally should all have equal rights to access. This is not practical in most cases, but what is practical is for the land occupier to pay rent to its owner and/or for this owner to pay revenue to the government for his exclusive rights for occupation of the land. That is to say we need a tax on land values, to discourage speculation of unused sites which will then come into use.

There are several effect that this land-value tax (LVT) will have and 15 of them are listed below:

15 ASPECTS of LAND-VALUE TAXATION
affecting Government, Land Owners, Community and Ethics

3 aspects for GOVERNMENT
1. LVT, adds to the national income. .
2. The cost of collecting the LVT is much smaller than for income tax and other production-related taxes.
3. With LVT, the national economy stabilizes and no longer experiences the 18 year housing boom and bust cycle.

6 aspects affecting LAND OWNERS
4. LVT is progressive, the owners of the most potentially productive sites pay the most tax.
5. The land owner pays his LVT regardless of how the land is used. When the land is leased to tenants most or all of the resulting ground-rent is the tax.
6. LVT stops the speculation in land prices because any withholding of land from proper use is too costly.
7. The introduction of LVT reduces the sales price of sites even though their value (or potential usefullness) may continue to grow.
8. With LVT, land owners are unable to pass the tax on to their tenant renters, due to the competition for land use.
9. With the introduction of LVT, land prices will drop. Speculators in land values will tend to foreclose on their mortgages and to withdraw their money for reinvestment. LVT should be introduced gradually. It allows investors sufficient time to transfer money to company-shares where their greater use will meet the increased demand for produce (see below).

3 aspects regarding our COMMUNITY
10. With LVT, there is an incentive to use land for production, rather than it laying idle or being partly used.
11. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper because entrepreneurs have less difficulty in starting-up and running their businesses. Demand grows, unemployment decreases
12. As LVT is introduced, investment money is withdrawn from land and placed in durable capital goods.

3 aspects about ETHICS
13. The collection of taxes directly from productive effort and commerce is socially unjust. LVT replaces this form of extortion by gathering the surplus rental income which comes without exertion. Consequently LVT is a natural system of money-gathering.
14. Bribery and corruption cease with LVT. Before, this was due to the leaking of news of municipal plans for housing development.
15. The improved use of the land will reduce the damage being done to the environment due to the sites being held unused being dumping grounds as well as the greater distances needing to be travelled between home and workplace requiring more transportation services and the associated emissions due to unnecessarily fuel use.

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